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There are special CGT rules that apply when you become or cease being a resident of Australia for tax purposes. These rules do not affect pre-CGT assets.
Becoming a resident
If you become a resident you are taken to have acquired certain assets - specifically, those that do not have a necessary connection with Australia (see Necessary connection with Australia) - at the time you become a resident. You are taken to have acquired them for their market value at that time. This does not apply to assets you acquired before 20 September 1985 (pre-CGT assets) and assets that had the necessary connection within Australia.
The general rules apply to any assets that had the necessary connection with Australia (for example, land in Australia) when you became a resident.
Ceasing to be a resident
If you cease being an Australian resident for tax purposes, you are taken to have disposed of assets that don't have the necessary connection with Australia for their market value on the day you stopped being a resident.
You disregard the capital gain or capital loss if you are an individual and were an Australian resident for less than five years during the 10 years before you stopped being one, and either:
- owned the asset before last becoming an Australian resident, or
- inherited the asset after last becoming an Australian resident.
Changes have been made to the law affecting temporary residents. The changes apply to CGT events that happen on or after 1 July 2006. For more information, see Capital gains tax update 2005-06 income year.
Choosing to disregard making a capital gain or capital loss
If you are an individual, you can choose to disregard all capital gains and capital losses you made when you stopped being a resident. If you make this choice the assets are taken to have the necessary connection with Australia until the earlier of:
- a CGT event happening to the assets (for example, their sale or disposal)
- you again becoming an Australian resident.
The effect of making this choice is that the increase or decrease in value of the assets from the time you cease being a resident to the time of the next CGT event or you again becoming a resident is also taken into account in working out your capital gains or capital losses on those assets. (For information about when and how you make a choice, see Choices below)
Generally, non-residents are only subject to capital gains tax on assets that have the 'necessary connection with Australia'. See International tax reform about proposed changes affecting non-residents or visit our website.
Necessary connection with Australia
Assets you may own that have a necessary connection with Australia include:
- land or a building in Australia (or an interest in land or a building)
- a CGT asset you have used in carrying on a business through a permanent establishment in Australia
- a share in a private company that is an Australian resident company for the income year in which the CGT event happens
- a share, or an interest in a share, in a public company that is an Australian resident company and in which you and your associates have owned at least 10% of the value of the shares at any time during the five years before the CGT event happens
- a unit in a unit trust that is a resident trust and in which you and your associates have owned at least 10% of the issued units at any time during the five years before the CGT event happens
- an interest (other than a unit) in a trust that is a resident trust for CGT purposes for the income year in which the CGT event happens, and
- an option or right to acquire any of the preceding CGT assets.
Assets that do not fall within one of the above categories - for example, land or a building overseas or shares in a foreign company - do not have the necessary connection with Australia.
Last modified: 06 Oct 2009QC 18504